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Pater Tenebrarum

Pater Tenebrarum

Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.

Articles by Pater Tenebrarum

Eastern Monetary Drought

22 days ago

Smug Central Planners
Looking back at the past decade, it would be easy to conclude that central planners have good reason to be smug. After all, the Earth is still turning. The “GFC” did not sink us, instead we were promptly gifted the biggest bubble of all time –  in everything, to boot. We like to refer to it as the GBEB (“Great Bernanke Echo Bubble”) in order to make sure its chief architect is not forgotten.

Naturally, we were premature in calling for the pompes funèbres and the grave diggers in order to inter the GBEB in late March, but the revival in US markets was a muted one and the funeral rites certainly continued in numerous emerging markets. Image credit: Sharon Hatley
China is widely considered an

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Is the Canary in the Gold Mine Coming to Life Again?

October 17, 2018

A Chirp from the Deep Level Mines
Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal – and hence highly leveraged to the gold price – South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details).

Mining engineer equipped with bio-sensor

Photo credit: Hulton Archive – Click to enlarge
As we write these words, the HUI Index is well off its intraday highs, apparently in response to the broader stock market attempting to recover. In other words, another short term pullback in the gold sector could easily be in the cards. But something is

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Are Credit Spreads Still a Leading Indicator for the Stock Market?

October 16, 2018

A Well-Established Tradition
Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a chart of US high yield spreads – currently they indicate that nothing is amiss:
It is fair to say that the current level of US high yield spreads is not what one would expect to see prior to a big decline in stock prices. Since we are

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Fed Credit and the US Money Supply – The Liquidity Drain Accelerates

October 11, 2018

Federal Reserve Credit Contracts Further
We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).

The Fed has clearly changed course under Jerome Powell – for now, anyway.
Our friend Michael Pollaro* recently provided us with an update on outstanding Fed credit. As there are no longer any outstanding reverse repos with domestic banks, the liquidity drain is accelerating of late, with growth in net

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In Gold We Trust – Incrementum Chart Book 2018

October 10, 2018

The Most Comprehensive Collection of Charts Relevant to Gold is Here
Our friends from Incrementum (a European asset management company) have just released the annual “In Gold We Trust” chart book, which collects a wealth of statistics and charts relevant to gold, with extensive annotations. Many of these charts cannot be found anywhere else. The chart book is an excellent reference work for anyone interested in the gold market and financial markets in general. A download link for the chart book can be found at the end of this post.

Central Bank Policies Turn, 2003 – 2019Turn of the tides: monetary expansion becomes monetary contraction – Click to enlarge
The chart book is based on the 2018 In Gold We Trust report

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US Stocks and Bonds Get Clocked in Tandem

October 8, 2018

A Surprise Rout in the Bond Market
At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won’t alter the status of today’s action – it is a typical warning shot. Here is what makes the sell-off unique:

30 Year Bond and 10 Year Note Yields, Nov 2016 – Oct 201830 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as we felt that the large speculative net short position in bonds and notes was prone to trigger a short covering rally. Alas, the opposite has happened. – Click to enlarge
Since the

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Switzerland, Model of Freedom & Wealth Moving East – Interviews with Claudio Grass

October 7, 2018

Sarah Westall Interviews Claudio Grass
Last month our friend Claudio Grass, roving Mises Institute Ambassador and a Switzerland-based investment advisor specializing in precious metals, was interviewed by Sarah Westall for her Business Game Changers channel.

Sarah Westall and Claudio Grass
There are two interviews, both of which are probably of interest to our readers. The first one focuses on Switzerland with its unique, well-developed system of  direct democracy as a model of freedom. These days, models of freedom seem to be increasingly rare, but Switzerland’s democratic traditions remain firmly in place.
The second interview focuses on the global economy, the movement of wealth from West to East, the US dollar

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US Equities – Approaching an Inflection Point

September 19, 2018

A Lengthy Non-Confirmation
As we have frequently pointed out in recent months, since beginning to rise from the lows of the sharp but brief downturn after the late January blow-off high, the US stock market is bereft of uniformity. Instead, an uncommonly lengthy non-confirmation between the the strongest indexes and the broad market has been established.
The chart below illustrates the situation – it compares the performance of the DJIA (still no new high since January, although it has come close), the NDX (one of the best-performing indexes, along with the Russell 2000/ RUT) and the NYA (our proxy for the broad market):
On Monday the NDX pulled back to its 50-day moving average, which has contained all short term

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Jayant Bhandari – The US Dollar vs. Other Currencies and Gold

September 7, 2018

Maurice Jackson Speaks with Jayant Bhandari About Emerging Market Currencies, the Trade War, US Foreign Policy and More
Maurice Jackson of Proven & Probable has recently conducted a new interview with our friend and occasional contributor to this site, Jayant Bhandari, who is inter alia the host of the annual Capitalism and Morality seminar.

Maurice Jackson (left) and Jayant Bhandari (right)
A wide range of topics is discussed, from the strong US dollar and its collapsing counterparts in emerging markets, to the looming threat of trade wars, to US foreign policy and the importance of gold as an insurance policy. As is his wont, Jayant brings a perspective that is often characterized by a refreshing dose of

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Wall Street – Island of the Blessed

August 16, 2018

Which Disturbance in the Farce can be Profitably Ignored Today?
There has been some talk about submerging market turmoil recently and the term “contagion” has seen an unexpected revival in popularity – on Friday that is, which is an eternity ago. As we have pointed out previously, the action is no longer in line with the “synchronized global expansion” narrative, which means with respect to Wall Street that it is best ignored.

Misbehaving EM currencies, 2016-2018 – Click to enlarge
Misbehaving EM currencies – the Turkish lira has become quite unruly of late, which is bad juju for a country with a huge balance of payments deficit and an external debt-to-GDP ratio of well above 50%. Arguably the zaftige move in

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Gold Sector – An Obscure Indicator Provides a Signal

August 14, 2018

The Goldminbi
In recent weeks gold apparently decided it would be a good time to masquerade as an emerging market currency and it started mirroring the Chinese yuan of all things. Since the latter is non-convertible this almost feels like an insult of sorts. As an aside to this, bitcoin seems to be frantically searching for a new position somewhere between the South African rand the Turkish lira. The bears are busy dancing on their graves.
The technical divergences we previously spotted have for the most part given up the ghost rather unceremoniously and quickly, although there are some remnants of technical hope in the form of diminishing momentum of the downtrend in gold and the lack of a new low in the HUI-gold

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An Inquiry into Austrian Investing: Profits, Protection and Pitfalls

August 11, 2018

Incrementum Advisory Board Discussion Q3 2018 with Special Guest Kevin Duffy
“From a marketing perspective it pays to be overconfident, especially in the short term. The higher your conviction the easier it will be to market your investment ideas. I think the Austrian School is at a disadvantage here because it’s more difficult to be confident about your qualitative predictions and even in terms of investment advice it is particularly difficult to be confident in these times because we don’t really have any historical precedents we can analyze and draw conclusions from.
Rahim Taghizadegan
As always, the discussion at the Incrementum Q3 Advisory Board meeting covered a wide range of subjects, with a special focus on

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Stock Market Manias of the Past vs the Echo Bubble

August 6, 2018

The Big Picture
The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.

Who’s who in the zoo in 2018 – Click to enlarge
The above combination is consistent with a market close to a major peak – although one must always keep in mind that divergences can become even more pronounced – as was for instance demonstrated on occasion of

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TARGET-2 Revisited

August 3, 2018

Capital Flight vs. The Effect of QE
Mish recently discussed the ever increasing imbalances of the euro zone’s TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.
TARGET-2 is a settlement system without a settlement mechanism – which is a major difference between the euro-system and the Federal Reserve system, which settles internal payment imbalances by transferring gold certificates. In our comment posted by

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A Scramble for Capital

July 26, 2018

A Spike in Bank Lending to Corporations – Sign of a Dying Boom?
As we have mentioned on several occasions in these pages, when a boom nears its end, one often sees a sudden scramble for capital. This happens when investors and companies that have invested in large-scale long-term projects in the higher stages of the production structure suddenly realize that capital may not be as plentiful as they have previously assumed. The wake-up call usually involves a surge in market interest rates and subtle shifts in relative prices in  the economy (consider for instance the recent decline in new home prices amid declining sales). Interest rates have certainly provided a signal lately.
We last mentioned this phenomenon in a

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US Money Supply and Fed Credit – the Liquidity Drain Becomes Serious

July 18, 2018

US Money Supply Growth Stalls
Our good friend Michael Pollaro, who keeps a close eye on global “Austrian” money supply measures and their components, has recently provided us with a very interesting update concerning two particular drivers of money supply growth. But first, here is a chart of our latest update of the y/y growth rate of the US broad true money supply aggregate TMS-2 until the end of June 2018 with a 12-month moving average.
Bank credit expansion in the US has recently recovered a little further, with commercial and industrial loans growing at 5.33% y/y as of the end of June and total US bank lending growth reaching 3.91% y/y (which is still nothing to write home about). The rise in C&I lending is

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The Gold Sector Remains at an Interesting Juncture

July 11, 2018

Technical Divergence Successfully Maintained
In an update on gold and gold stocks in mid June, we pointed out that a number of interesting divergences had emerged which traditionally represent a heads-up indicating a trend change is close (see: Divergences Emerge for the details). We did so after a big down day in the gold price, which actually helped set up the bullish divergence; this may have felt counter-intuitive, but these set-ups always do. Consider now the updated chart below (we have added the HUI-gold ratio in the third panel of the chart, as it provides additional clarity).

Everybody has different reasons for wanting to buy or hold gold – this is actually a fairly good one… 🙂
As the chart illustrates,

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Gold – Macroeconomic Fundamentals Improve

July 10, 2018

A Beginning Shift in Gold Fundamentals
A previously outright bearish fundamental backdrop for gold has recently become slightly more favorable. Ironically, the arrival of this somewhat more favorable situation was greeted by a pullback in physical demand and a decline in the gold price, after both had defied bearish fundamentals for many months by remaining stubbornly firm.

The eternal popularity contest… – Click to enlarge
The list of gold fundamentals that have improved is short, but at least there is now such a list:

credit spreads: European high yield spreads have broken out to the upside. In the US, high yield spreads are better behaved (we suppose mainly on account of the fortunes of the energy sector),

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Merger Mania and the Kings of Debt

June 24, 2018

Another Early Warning Siren Goes Off
Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the situation. This snapshot was taken shortly after a particularly busy “Merger Monday” in May, which saw $28 billion in takeover announcements:
Almost needless to say, this is a nigh perfect medium to long term contrary indicator. When stocks are

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Cryptocurrency Technicals – Navigating the Bear Market

June 20, 2018

A Purely Technical Market
Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing appropriate (and potentially more stable) exchange rates relative to state-managed fiat currencies is still underway.
At present the above mentioned process is still at a very early stage, hence speculative trading remains the dominant

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Gold Divergences Emerge

June 18, 2018

Bad Hair Day Produces Positive Divergences
On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week’s time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  – and China’s mandarins replied: just you wait, we can hurt our consumers just as badly!

Left: the US administration releases details of its upcoming domestic consumer mistreatment measures; Right: China immediately shoots back with an image of the infamous ankle crusher which it

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Credit Spreads: Polly is Twitching Again – in Europe

June 14, 2018

Junk Bond Spread Breakout
The famous dead parrot is coming back to life… in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” – mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while “investors” (we use the term loosely) pile into ridiculously overvalued bonds that will eventually saddle them with eye-watering losses.
Readers may recall previous discussions of credit spreads in these pages –  on a whim we likened the demise

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In Gold We Trust, 2018

May 31, 2018

The New In Gold We Trust Report is Here!
As announced in our latest gold market update last week, this year’s In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek has just been released. This is the biggest and most comprehensive gold research report in the world, and as always contains a wealth of interesting new material, as well as the traditional large collection of charts and data that makes it such a valuable reference work for gold investors.
To provide a brief overview of the contents, here is the press release that accompanied the publication – the report is available for download via a link further below.

Nothing provides a feeling of material security comparable to the reassuring

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Gold and Gold Stocks – Conundrum Alert

May 22, 2018

Moribund Meandering
Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the intense patience training session for gold bugs is set to continue for a while longer.

Luckless gold bug surrounded by false starts, with his only friend, a startled moose. – Click to enlarge
The above mentioned seasonal rally started

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US Money Supply Growth Jumps in March , Bank Credit Growth Stalls

May 12, 2018

A Movie We Have Seen Before – Repatriation Effect?
There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.

Annual Growth Rate of TMS 2, Feb 1996 – 2018 – Click to enlarge
The 12-month moving average nevertheless continued to decline and stands now at 4.1%.
The sole component of TMS-2 showing sizable growth in March was the US Treasury’s general account with the Fed. This is included

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The Capital Structure as a Mirror of the Bubble Era

May 9, 2018

Effects of Monetary Pumping on the Real World
As long time readers know, we are looking at the economy through the lens of Austrian capital and monetary theory (see here for a backgrounder on capital theory and the production structure). In a nutshell: Monetary pumping falsifies interest rate signals by pushing gross market rates below the rate that reflects society-wide time preferences; this distorts relative prices in the economy and sets a boom into motion – which is characterized by widespread malinvestment of scarce capital and over-consumption; eventually, the distorted capital structure proves unsustainable – interest rates begin to rise, and boom turns to bust. Many businessmen belatedly realize that the

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US Stock Market: Happy Days Are Here Again? Not so Fast…

April 21, 2018

A “Typical” Correction? A Narrative Fail May Be in Store
Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will certainly point those out when we see them. Anyway, something else is evidently happening. Here is a chart of the SPX that shows the important trend-line which was so far successfully defended:

S&P 500 Large Cap Index, Dec 2016 – Apr 2018(see

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Claudio Grass on Cryptocurrencies and Gold – An X22 Report Interview

April 12, 2018

The Global Community is Unhappy With the Monetary System, Change is Coming
Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek’s idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them will be winners and losers.

Claudio stresses that the decentralization of these currencies in particular is a crucial development. It cuts out countless middlemen, who are often protected by  state-granted privileges. The blockchain

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Short Term Market Signals

April 1, 2018

SPX Trendline Battle, Relative Strength in RUT
We reviewed the daily charts after yesterday’s close and noticed that the Russell 2000 Index, the NYA and transportation stocks all exhibited relative strength (the same holds actually for the DJIA), particularly vs. the FANG/NDX group. This is happening just as the SPX is battling with an extremely important trendline. As we pointed out before, relative strength in the RUT in particular served as a short term reversal signal ever since the sell-off started in February. The question is if this signal will continue to work. Here is an updated chart:

SPX Daily, RUT Daily and SPX-RUT Ratio, Dec 2016 – Mar 2018The SPX, the RUT and the RUT-SPX ratio. – Click to enlarge

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GBEB Death Watch

March 31, 2018

A Word on 1987 Analogies – Why Even Bother?
As our friend Dimitri Speck noted in his recent update, the chart pattern of the SPX continues to follow famous crash antecedents quite closely, but obviously not precisely. In particular, the decisive trendline break was rejected for the moment. If the market were to follow the 1987 analog with precision, it would already have crashed this week. Nevertheless, we wanted to show one more parallel in connection with the previously discussed “flight to fantasy” effect. As we mentioned when we posted this chart, the divergent DJIA/NDX peaks we could recently observe happened in 1987 as well. Here is a chart of the event:

DJIA and NDX Daily, May – Nov 1987Divergent highs and

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